Last updated October 24th, 2018.
Investment advisers, especially those in the west, sometimes tell their clients they can’t beat the market. They’ll say a “market average” return of around 7% per year is the best you can hope for over the long term.
This might be true if the United States (or wherever you happen to live) were the only country on Earth. Indeed, there’s plenty of statistics showing the merits of investing in an index fund versus picking your own stocks.
But few investment advisers think outside the box. Even less think globally. They’re constrained by the stock market and usually by the borders of the country they’re living in too.
See, there’s not just “the market”. From Japan, to Vietnam, to Kenya, there’s many different markets. Some are stock markets, others are private equity or real estate markets.
Either way, lots of these markets boast opportunities which can’t be found in your home country at all.
They’re often uncorrelated with the S&P 500 or Dow Jones, making the “7% average” a rather meaningless figure in a global context.
Breaking Down Barriers to Entry
You might be wondering: “if better returns can be found in other places, why doesn’t everyone invest in them?”.
The answer is because of barriers to entry. High growth frontier markets, such as Laos and Cambodia, don’t have stock exchanges which are fully functional and liquid. As such, there’s few simple and reliable options to invest in them.
Institutional investors, those often wanting to deploy a large amount of capital at a time, especially face problems.
For example, it would be impossible for Vanguard or iShares to start an ETF focusing on Myanmar or Mongolia.
These countries can’t offer the liquidity or other purchasing requirements these firms would need – even if they managed to wade through the bureaucracy and foreign regulations.
Some financial “experts” will tell you that markets are efficient, and as such, it’s impossible to get outsized returns on investments compared to the risk involved.
This could possibly be true, even though it’s likely not. But even then it would only apply to markets that investors can trade in without entry barriers.
Markets aren’t efficient if most people don’t put forth the effort to access them.
Cambodia is one of the fastest growing nations on the planet. But it also has the world’s smallest stock exchange with only two listed companies.
Effort Helps You Beat the Market
Speaking of effort, hard work is something else which can help you beat the market. Don’t underestimate the impact additional labor can have on an investment.
As cliche and obvious as it may sound, your work does have value.
It’s the reason why day-traders can sometimes beat the market, outperforming passive stock investors. Property flippers often make consistent returns in the double digits because of their extra work.
Similarly, massive hedge funds and other financial institutions wouldn’t spend millions on skilled analysts if the added cost wasn’t worth their labor.
You might not have enough time nor the expertise needed to become a professional day trader or property flipper. Most people certainly don’t.
However, REITs, and private placements are several ways to let someone else do the work for you. Sometimes they’ll charge you a fee. But sometimes the fee is worth it.
In my experience, the most profitable investments combine solid effort with breaking down barriers to entry. It’s even better if you can do so in fast-growing, stable countries.
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